What Happened to Big Deals?

When it comes to merger and acquisition activity so far this year, companies are still doing deals. They just aren’t doing big ones.

Deal activity in the US fell 41% by dollar amount through June 30, but was down only 5% in terms of the number of deals made. Those figures mirror the global M&A environment, in which dollar value fell 38% but deal volume only dropped 9%. With the exception of 2020, it’s the worst first-half-of-the-year M&A performance in a decade.

“There is a lot of money on the sidelines,” says Mark Arian, CEO of Korn Ferry Consulting, citing everything from high valuations of companies to low earnings figures (he calls them an “earnings recession”). Whatever the reason, so-called “megadeals”—transactions worth more than $10 billion—have been few and far between. Historically a hallmark of M&A activity, these deals declined 53% year-over-year through June 30, marking their lowest total since 2017.

For his part, Chad Astmann, co-head of global investment management at Korn Ferry, says management teams have been reluctant to pursue big deals because “the regulatory environment for them has been restrictive.” Other factors have also played a role, including high interest rates, inflation, and an unusual number of CEOs leaving their jobs this year. “Deals, especially larger ones, don’t get done when CEOs are leaving companies,” says Alan Guarino, vice chairman in the CEO and Board Services practice at Korn Ferry.

The decline in deals is forcing firms to explore other ways to grow. Arian says boards and leaders are using the lull to focus on classic financial rigor and operational discipline, as well as on improving efficiency and productivity amid the economic downturn that began last year. Firms are also trying to drive organic growth by retaining and motivating key talent and getting the right managers and unit leaders in place. “Companies are trying to pull as many levers as possible to grow,” says Arian.

The rise of generative artificial intelligence in the workplace could also create opportunities. Instead of doing a megadeal, some firms could produce the growth they seek by incorporating AI throughout their operations, says Tammy Wang, vice president of data science and machine learning for Korn Ferry Digital. Other firms, by contrast, may need to divert some capital previously earmarked for M&A into AI tools. “Leaders are being patient in thinking through how AI and M&A fit into their plans,” says Wang.

There are some signs that the M&A environment is starting to improve. Second-quarter activity increased by 22% over the first quarter, for instance. Inflation is coming down and interest rates are holding steady. And a high-profile megadeal—Microsoft’s $69 billion acquisition of Activision—is likely heading towards approval, despite the FTC’s attempt to block it. Its consummation could embolden bigger buyers and sellers to come off the sidelines. “That would spur more activity,” says Arian.

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